The Gulf Coast Boom: Petroleum, Pipelines and Prices Lipow Oil Associates, LLC October 30, 2018 andy@lipowoil.com

Agenda Crude Oil Production Crude Oil Pipelines, Terminals, Docks Refinery Capacity and New Pipelines IMO Marpol Market Comments Lipow Oil Associates

USA Crude Oil Production Million Barrels per Day Lipow Oil Associates

Pipeline Connectivity Enbridge from ND/Canada Lockport Pipeline Connectivity DAPL Enbridge Lines 6 and Line 9 Keystone Mustang SAX Marathon, IL,OH Spearhead Flanagan South Capwood Patoka Woodpat Mid Valley To Ohio Ozark Cushing Basin Centurion Permian Express ETCOP Capline W. Texas Gulf Longhorn BridgeTex Enterprise Cactus Seaway and TransCanada Zydeco Lipow Oil Associates

State Crude Oil Production Million Barrels per Day Nigeria Angola Venezuela Algeria Libya Qatar Ecuador Lipow Oil Associates

Texas Permian + New Mexico Oil Production Thousand Barrels Per Day Lipow Oil Associates

Permian Basin Takeaway Volumes in MBD Pipeline Takeaway Current 3214 Sunrise 220 PE III 50 Bridge Tex 40 Cactus II 670 Future 4194 (2019) WA Line Line 80 Basin Centurion West Texas Gulf Prm Express II/III Refining Takeaway Western El Paso 130 Western NM 25 Holly 100 Alon 70 WRB included in PL Total 325 Amdel Longhorn BridgeTex Enterprise Cactus Lipow Oil Associates

Pipeline Capacity to Cushing Thousand Barrels Per Day Sunrise 120 Nov 2018 Sunrise/Nustar/Ardmore 100 Nov 2018 Sunrise Phase III 500 Unknown Lipow Oil Associates

Pipeline Capacity to Corpus Christi Thousand Barrels Per Day Cactus II (Plains) 670 Nov ‘19 Gray Oak (P66, MPC) 800 End ‘19 EPIC 600-900 Jan ‘20 EPIC plans to provide interim service on the 400 MBD NGL Line 3Q 2019 Cactus III (Plains) 200-400 ??? Lipow Oil Associates

Pipeline Capacity to Houston/Beaumont Thousand Barrels Per Day Perm Exp III (ETP) 50 Oct ‘18 BridgeTex (MMP/PAA) 40 1Q ‘19 Enterprise Conversion 200 2020? ETP/Magellan/Delek 600 Mid ‘20 Plains/Exxon 1000 2021 Lipow Oil Associates

Cumulative Change in Permian Supply versus Takeaway Thousand Barrels per Day Gray Oak EPIC Enterprise ETP/MMP/DLK Sunrise PE III BridgeTex Cactus II Enterprise Expansions Enterprise PE III Lipow Oil Associates

Terminal Expansions Corpus/Ingleside Thousand Barrels of Capacity Plains/Enterprise 1200 4Q ’18 Magellan 1000 2019 Pin Oak 2240 2019 Flint Hills 1120 Oct ‘19 Moda (Oxy) 4700 End ‘19 South TX Gateway 3400 End ’19 Junction Energy 1500 ??? TX Gulf Terminals 6000 ??? Harvest/Vitol Lipow Oil Associates

Terminal Expansions Houston/Beaumont Thousand Barrels of Capacity Enterprise 4200 2018 Magellan East Houston 1500 Mid ’18 MPC TX City 1230 End ‘18 Phillips66 Beaumont 2200 End ‘18 Seabrook Logistics 700 End ‘19 Lipow Oil Associates

VLCC Crude Oil Export Projects Jupiter Midstream Brownsville Offshore Loading Pt of Corpus Christi Harbor Island VLCC Dock Texas Gulf Terminals Trafigura Corpus Christi Offshore Loading Oxy Ingleside VLCC Dock South Texas Gateway Ingleside VLCC Dock Enbridge/Kinder/Oil Tanking Freeport Offshore Loading Enterprise Texas City: VLCC Loading Flint Hills Ingleside Evaluating Project Lipow Oil Associates

Midland WTI Differentials $/bbl Source: CME Group Daily Bulletin Lipow Oil Associates

EIA Refinery Operable Capacity Million Barrels per Calendar Day Lipow Oil Associates

Refining Capacity Since Jan 2015, USA has added 785 MBD Valero McKee 27, Corpus 70, Houston 90 Splitters: Kinder 100, Buckeye 50, Magellan 50, Petromax 27, Targa 35 Expansions: Exxon Beaumont, Raven Laredo, MMEX Ft Stockton, Jupiter Brownsville Lipow Oil Associates

PADD 3 Crude Oil and Product Exports Thousand Barrels per Day (EIA) Lipow Oil Associates

Product Pipelines to Mexico Capacity in MBD Existing Magellan El Paso to Juarez 30 Pemex Frontera El Paso to Juarez 45 New Projects Howard Midstream Dos Aguilas Corpus to Monterrey 90 Nustar Burgos to Laredo 64 Nustar New Burgos Corpus to Nuevo Laredo 108 Pemex Frontera Brownsville to Matamoros 30 Lipow Oil Associates

IMO Marpol Annex VI Program is based on reducing deaths due to sulfur emissions from vessels Bunker fuel sulfur reductions began in 2010 Emission Control Areas such as USA and NWE sulfur spec reduced from 1.0 to 0.1 wt% in Jan 2015 Effective Jan 1, 2020, sulfur specs are being reduced from 3.5% to 0.5% Current HSFO Consumption is 3.5-4.0 Million B/D Lipow Oil Associates

Vessel Considerations Do nothing and burn LS fuels (diesel, LS VGO) Install scrubber and continue to burn HSFO Scrubber Cost is $2 to $5 million depending on vessel Limited capital investment, perhaps 20% of the fleet will have scrubbers As time goes on, more vessels will install scrubbers Lipow Oil Associates

Refinery Considerations Do Nothing New Coker $500MM-$1 B, 3 to 5 years to get on line Resid Desulfurization: $300-$500 MM 3 years to get on line Solvent Deasphalting: $200-$300 MM 2 to 3 years to get on line Lipow Oil Associates

Marine Vessel Fuel Supply Industry must deal with 3.5 to 4.0 MMBD Vessels: 1500 scrubbers will be either on order or installed by Jan 2020 = 500 MBD Refineries: Investments upgrade 700 MBD Non –Compliance = 350 MBD HSFO Blending = 350 MBD Leaves the industry to come up with 2 MMBD of low sulfur compliant fuel Lipow Oil Associates

Compliant Fuel Must be 0.5% sulfur or less Distillate, LSVGO, LS Slurry, LS Resid Industry expects that the new bunker pool will be distillate based Distillate contains 8% less BTU’s per gallon that HS bunkers Gasoline and diesel are low sulfur fuels, bunkers now join the list Lipow Oil Associates

TFFA Implications Increased demand for distillate = higher price Refinery 2020 diesel margin is $6 per barrel more than today Refiners divert VGO from the FCCU = less gasoline supply = higher price Ethanol and Biodiesel, are low sulfur fuel volume extenders Lipow Oil Associates

Summary Producers/Refiners aligning with logistics providers to construct infrastructure reaching overseas markets Adequate crude oil logistics and export capacity underway to meet increasing production Additional refined product export capacity coming on line and under construction as USA demand plateaus or declines Lipow Oil Associates Lipow Oil Associates 26

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